In recent years, the Federal Energy Regulatory Commission and other regulators have been mandating the deregulation and restructuring of the electricity industry in the United States. This follows a similar restructuring of the telecommunications industry and other regulated industries over the last two decades. It has become apparent to consumers, regulators, and industry experts alike that the electricity industry no longer fits the natural monopoly model that has thus far existed in this country, and that a new competitive model is necessary for the continued growth and health of this industry.
The restructuring of the electricity industry has driven significant change within the industry. Most significant of these changes are the separation of the physical flow of electricity from its financial flow, and the introduction of retail and wholesale competition. With the introduction of new types of transactions, the establishment of new markets, and the emergence of new market players, there is a growing need for a system and method to coordinate and manage this competitive marketplace.
The physical flow of electricity remains substantially unchanged from the traditional utility model. Electricity is still generated, transmitted over transmission and distribution wires, and consumed by end-users. In the traditional model of the electric industry, the money is routed through the same organizations as the electricity itself. In the new marketplace, however, transactions become considerably more complex. Money may trade hands several times and there may be any number of financial instruments related to a single physical delivery of energy. This suggests a need for additional capabilities to facilitate, coordinate and manage the increasing number and complexity of these financial transactions. FIG. 1 illustrates the separation of physical and financial flows concerning electricity in the new competitive marketplace. It can be seen from FIG. 1 that while the physical flow of electricity remains unchanged, the financial flow is now from the consumers to the energy merchant and onto the producers.
With ownership of physical infrastructure no longer a prerequisite for entering the energy marketplace, many new entities have begun to participate in the electricity trade. Also, utilities have begun to divest and separate their generation from their transmission and distribution. As a result, with reference to FIG. 2, the electricity marketplace must now accommodate producers such as generation companies; deliverers such as transmission distribution companies, and regional transmission groups; energy merchants such as energy traders, power marketers; and other new entities. Each organization within the industry may have any number of customers, but only in some cases is this customer the end-user or “consumer” of the electricity. In all cases, however, the various organizations must exchange information, money, energy, and energy-related services. The industry faces many challenges in facilitating, coordinating and managing the interactions of all of these new and transformed entities.
From this perspective, the area that has probably seen the most dramatic change over the last few years is the central operator. A central operator is a broad term grouping a variety of organizations that lie at the center of the value chain, as shown in FIG. 2. It describes the collective functions that facilitate, coordinate and manage the activities of participants in the electricity marketplace.
The traditional central operator's role has been to operate the transmission system, usually as a small division of a large utility or power pool (e.g., New England Power Pool). This is sometimes known as a system operator function. The system operator is responsible for planning, scheduling and dispatching generation; managing the interconnected transmission grid; and ensuring short-term and long-term system reliability. In the past, power pools, reliability councils, and traditional vertically integrated utilities have handled these tasks through coordinated efforts. In the competitive marketplace, however, the central operator has emerged as a leading alternative to support the combined roles and responsibilities of these traditional organizations.
Under deregulation, the roles played by central operators have expanded from coordinating the safe and reliable operation of a power system to implementing market rules, facilitating physical and financial transactions, and serving as a gatherer and central coordinator of market information. This is sometimes referred to as a market operator function.
As a market operator, the central operator may be responsible for conducting an auction of energy and accepting and managing competitive bids and contracts for energy and ancillary services. It provides for the financial settlement of energy and ancillary service markets, including billing and clearance for market trading.
To address the changing face of the energy marketplace, it is desirable to provide a system and method of facilitating, coordinating and managing the operation of that marketplace that is simple to use, manages competitive bids and contracts and financially settles the marketplace.
It is also desirable to provide a system that is flexible and can be modified to accommodate market growth and changing business rules.